Synthetic Assets - zAssets
Horizon Protocol bridges the products of traditional financial markets and brings it into the world of decentralized finance (DeFi) in the form of synthetic assets.
Synthetic assets are tokenized derivatives, which are contracts that represent the underlying value of an asset, without requiring actually holding the asset itself.
Synthetic assets can be stocks, tokens, indices, NFTs, or other financial products and are produced to mimic the original asset, typically in the form of its price. For example, a synthetic asset of a stock would mimic the price fluctuations of the stock, while a synthetic asset of a token would mimic the price fluctuations of the token.
Synthetic assets, known as a “zAssets” on Horizon Protocol, can track the price movement and risk reward profiles of traditional assets such as equities or stocks, commodities like gold and oil, currencies like the US dollar or Euro, crypto assets such as Bitcoin, Ethereum, and NFTs, and even baskets of multiple assets, like index funds or ETFs. Horizon Protocol’s very first “zAsset” is the “zUSD”, a stable coin tied to the value of the US Dollar.
Since synthetic assets are also tokenized, they are easily accessible and allow for an additional layer of DeFi products that can be applied to the asset, possibly giving yield-generating opportunities to investors on assets that may not have had these options naturally.
DeFi and synthetic assets are a perfect evolution for derivatives. In the traditional market, derivatives are typically used for three reasons: to hedge a position, to increase leverage, or to speculate on an asset’s price movement.
With the derivatives market being estimated at over $1 quadrillion on the high end, a decentralized derivatives market that is borderless can provide more equal access to investment opportunities globally, as well as introduce new innovative derivative products that have never existed before.
To make a decentralized synthetic assets market possible, Horizon Protocol establishes a system for providing collateral to back the issuance of “zAssets”. The collateral is in the form of Horizon Protocol’s native token, “HZN”, which is staked to make sure there is sufficient value underlying all “zAssets”. Dividends are then paid out to all users who have staked HZN to help support the market.
For stability, incentives are in place to make sure stakers actively participate in the staking process to balance out the collateral-to-asset ratio.
Synthetic Assets produced on Horizon Protocol are called zAssets. For example, Bitcoin (BTC) would be called zBTC and Apple (APPL) stock would be called zAPPL.
Horizon Protocol smart contracts always values any non-zUSD zAsset at the current market rate of its underlying asset through the use of Chainlink Oracles, a decentralized price feed that mimics the price of the underlying asset. This guarantees that the value of a zAsset such as zBTC will always be valued and traded at the current market price of BTC within the Horizon Protocol ecosystem. All non-zUSD zAssets are overcollateralized at the same rate as zUSD and are backstopped by HZN stakers, who incur the risk of the fluctuating rates of all zAssets in the protocol and are incentivized to maintain a healthy collateralization ratio.
zUSD is the core zAsset of Horizon Protocol and is a stablecoin pegged to the US Dollar. zUSD is important because the total value of all the synthetic assets (global debt) produced on Horizon Protocol is evaluated and denominated in zUSD. zUSD is also the key entry point for getting exposure to 25+ synthetic assets listed on Horizon Protocol across many market sectors that represent the real economy. zUSD will also be the primary currency of margin for all trading in our upcoming perpetual futures exchange.
On a smart contract level, Horizon Protocol will always value zUSD at $1.00 when being minted,burned, or exchanged for other zAssets. zUSD is overcollateralized by HZN stakers at a 600% ratio and is incentivized with rewards and fees generated by the protocol to maintain a healthy collateralization ratio (C-Ratio). Users who fail to maintain a healthy C-Ratio may be liquidated by other protocol participants, who are incentivized to keep irresponsible stakers in check.
The value of zUSD that exists on the open market (i.e. DEXs/CEXs) could fluctuate in price (based on supply/demand), but any price deviation from $1.00 would create arbitrage opportunities to profit between the open market and Horizon Protocol.
As per HIP-8, the open market zUSD liquidity pool will exist and be incentivized on Wombat Exchange’s multi-chain stableswap.
zUSD also facilitates the trading of over 25 other zAssets across 4 real world market sectors, and are available on the Horizon Protocol under the “Trade” section
zBNB is one of the 25+ synthetic assets (zAssets) backed by Horizon Protocol’s liquidity system. Because BNB is the native coin on Horizon Protocol’s home chain, as well as the most liquid asset on the BNB Chain, liquidity for zBNB was chosen and incentivized as a secondary on/off-ramp for users to get access to zAssets on the open market (zUSD being the primary). Furthermore, a secondary zAsset market is important for non-protocol participants to also access and arbitrage zAsset open market price deviations without actually having to collateralize the zAssets themselves through staking.
As per HIP-8, the open market zBNB liquidity pool will exist and be incentivized on Wombat Exchange’s multi-chain stableswap.
Last modified 25d ago